A multi-asset portfolio
As of December 2019 a balanced portfolio, based on global market capitalisation, would have looked something like this. 41% equity, 25% bonds, 20% investment grade credit and then the rest.
At its current market capitalisation of $325 billion bitcoin would represent 0.24% of this portfolio. It would not show up on the pie chart at all.
The smallest asset on the chart is high yield debt at 1.4%, six times the size of bitcoin’s allocation.
There is a bit of excitement at the moment, but I assure you absolutely nothing has happened. We haven’t even arrived at the ball game yet.
Zero remains a possible outcome, but I must say people seem to have difficulty computing the other possible outcomes. The numbers are too large and so “they must be wrong”. Must they?
Buy it, keep it and don’t get distracted by the price. It’s a lot harder than you think.
Build Back Better
The internet is alive with conspiracy. Apparently, “Build Back Better” is being used by governments around the world to usher in a new world order which will house whichever particular aspects of government you dislike the most.
In fact, it’s not new at all. It came from the World Health Organization in 2013 and was about treating mental health after emergencies. I suspect what has happened is governments have turned to their advisors and said “what do we do?”. Those advisors have turned to Google and found a catchy theme called “build back better”. Then other countries follow, they want a catchy theme too and they also use Google. Now it’s a global theme. We’re all in it together, everything will be okay because we are going to “Build Back Better”. Suddenly, every lost for ideas leader uses it and now its a ‘conspiracy’. It only takes a matter of days.
‘Better’ will of course mean whatever your local government wishes it to mean. In America, it is likely to mean a massive increase in spending and redistribution. In Europe, it likely means even more roads in Spain that nobody uses and in Australia, at least in New South Wales, every adult will be getting four $25 meal vouchers to eat out. We’ll have the soup of the day please, no bread.
The bottom line is there will be massive increase in government spending across the world at a time there has never been more debt. Like a post second world war shot in the arm. There is actually no reason why it will not succeed either.
The obvious consequence though, is that the value of money is going down fast and just like every burst of government spending ever, bondholders will pay, even if they do not know it. Your pension fund will pay.
It absolutely is not a conspiracy, it’s just the only option and it has been obvious for a long time.
Visualizing Bitcoin
When you see gold, it’s obvious. Most people would correctly identify it. Unfortunately for bitcoin, you cannot see it in the same way.
Happily, there is now a visual representation of the bitcoin blockchain at the excellent site mempool.space. It provided some real insight this weekend when two very unusual things happened.
First, at block 656,946 we had a block that was not full but nobody paid the minimum fee. The minimum fees in bitcoin is 1 satoshi/byte of data.
A simple bitcoin transaction would generally have around 375 bytes of data. At 1 sat/byte that is 375 satoshis which is 0.00000375 Bitcoin = 6 cents.
That people are becoming conditioned to know that the minimum fee will not guarantee you space in a block, suggests the fee market is developing strongly. I anticipate in a couple of years there is no way you get in a block for 1 sat/byte. It’s a cheap privilege which people will look back on with amazement.
Some hours earlier at block 656848, we had a succession of 2 Megabyte blocks. Originally the bitcoin blocksize limit was 1MB. After the fork wars of 2017, the network activated Segwit, (basically smaller transactions) which also permitted larger blocks to be processed.
Quite unusual to see so many 2MB blocks in a row. but the former trend of higher fees is pushing people to adopt Segwit so they can pay less to use bitcoin.
In time we will see much more of this in terms of fee saving devices and methods for achieving maximum efficiency on the blockchain. At the moment trying to get minimum fee transactions through it is just for enthusiasts, the fees are low enough for nobody to care.
It will not be like this forever though, enjoy it while it lasts.
The ECB
Without the ECB, it’s fair to say that this column would be very much shorter each week. They are a gift that continues to give and I love them for it. This week we have a new Euro babble account to follow on twitter. They were excitedly introduced by the Queen Bee of Euro-nonsense herself, Christine Lagarde. She is Chair of the General Board of the European Systemic Risk Board (they have numerous Boards apparently).
Incidentally, the headline on their website is gem. Its an explanation of “why we didn’t spot the collapse of one of the biggest banks in Germany (Wirecard) even though all the warning signs were there”. Apparently, it was all Germany’s fault.
Personally I think it was because they didn’t have enough boards, or board persons or oversight committees. I’ll write to them and recommend more academics be added to the staff to prevent this kind of thing happening again.
A very clever moron
Congratulations to Roxana Mihet of Switzerland. She won the European Central Bank Young Economist of the year award.
Roxana has ‘discovered’ that new financial technology generally benefits the existing participants of the current financial system. I would posit that this is because it is designed by them, specifically for them to benefit further. Indeed, I could have told you that without spending six years at the University of Lausanne.
Roxana should have won the award for showing why bitcoin is a good idea and the current financial system is a gigantic fraud since it systematically has benefited the same group of people for the last 100 years.
Here’s her clever maths which needlessly complicates something that’s blindingly obvious without it.
I predict she will do extremely well at the ECB.
